UNINSURED MOTORIST COVERAGE

The only logical place to begin any discussion of uninsured motorist law in Alabama is with the Uninsured Motorist Statute, as the language of all insurance policies issued in this state essentially track its language, and since an insurance company could not and would not be allowed to enforce a policy, even if it tried, that contained terms contrary to the statute State Farm Auto. Ins. Co. v. Reaves, 292 Ala. 218, So. 2d 95 (Ala. 1974). Said statute, Section 32-7-23 Code of Alabama reads as follows:

Uninsured motorist coverage;  "uninsured motorist" defined; limitation on recovery.

(a) No automobile liability or motor vehicle liability policy insuring against loss resulting from liability imposed by law for bodily injury or death suffered by any person arising out of the ownership, maintenance or use of a motor vehicle shall be delivered or issued or principally garaged in this state unless coverage is provided therein or supplemental thereto, in limits of bodily injury or death set forth in subsection (c) Section 32-7-6, under provisions approved by the Commissioner of Insurance for the protection of persons insured thereunder who are legally entitled to recover damages from owners or operators of uninsured motor vehicles because of bodily injury, sickness or disease, including death, resulting therefrom; provided, that the named insured shall have the right to reject such coverage; and provided further that unless the named insured requests such coverage in writing, such coverage need not be provided in or supplemental to a renewal policy where the named insured had rejected the coverage in connection with the policy previously issued to him by the same insurer.

(b) The term "uninsured motor vehicle" shall include, but is not limited to, motor vehicles with respect to which:

(1)  Neither the owner nor the operator carries bodily injury liability insurance;
(2) Any applicable policy liability limits for bodily injury are below the minimum required under Section 32-7-6, 
(3) The insurer becomes insolvent after the policy is issued so there is no insurance applicable to, or at the time of, the accident, and;
(4) The sum of the limits of liability under all bodily injury liability bonds and insurance policies available to an insured person after an accident is less than the damages which the injured person is legally entitled to recover.

(c) The recovery by an injured person under the uninsured provisions of any one contract of automobile insurance shall be limited to the primary coverage plus such additional coverage as may be provided for additional vehicles, but not to exceed two additional coverages within such contract.

The concept of uninsured motorist coverage is quite simple. In essence, it provides that the insured may recover against the uninsured motorist carrier the amount of money damages he is legally entitled to recover against the tort-feasor who caused his injuries, provided that he can further prove that said tort-feasor was "uninsured."  Thus, to repeat, the three critical elements which must be proved by an individual asserting an uninsured motorist claim are as follows:

(1) That said individual is an "insured," i.e., that he is entitled to the benefits of the uninsured motorist coverage provided by the policy, to begin with;

(2) That he is "legally entitled to recover" damages for bodily injury or death from the tort-feasor; and;

(3) That the tort-feasor was "uninsured," as that term is defined in the Alabama Uninsured Motorist Statute and the insurance policy.

The answer to each of these would appear to be obvious, at first glance, but as demonstrated below, looks can be deceiving, and a working familiarity with the law concerning each of these elements is essential for the legal practitioner who wishes to handle uninsured motorist cases and avoid potential pitfalls. Accordingly, each of them is individually addressed below, although not necessarily in order.

A motor vehicle is "uninsured" when (1) neither the owner nor the operator of said vehicle has any liability insurance; or (2) the applicable limits for the coverage for said vehicle for bodily injury liability are below the statutory minimum limits; or (3) the insurer becomes insolvent, or for some other reason, cannot or will not pay the claim; or (4) although he has insurance, the tort-feasor's bodily injury liability coverage is insufficient to fully compensate the claimant for his injuries and damages; or (5) the owner or operator of the vehicle causing the accident is unknown, commonly referred to as a "hit and run" or "phantom" vehicle case.

The first four categories or definitions of "uninsured motorist" are set forth in Alabama's Uninsured Motorist Statute, Section 32-7-23 Code of Alabama. The fifth, i.e., the "hit-and-run" or "phantom" vehicle classification was initially established through Alabama Supreme Court cases, please see, e.g., Wilbourn v. Allstate Ins. Co., 293 Ala. 466, 305 So. 2d 372 (1974); Criterion Ins. Co. v. Anderson, 347 So. 2d 384 (Ala. 1977), and has now been incorporated into literally every automobile insurance policy sold and issued in Alabama. Of course, with the amendment of Section 37-7-23 in 1984, coverage also comes into play when the liability limits available to the tort-feasor are insufficient to adequately compensate the insured for the injuries he is legally entitled to recover, commonly referred to as "underinsured motorist" coverage.

The "hit-and-run" or "phantom" vehicle case presents some special considerations. Such cases are obviously ripe for fraudulent claims. For example, if the insured is driving too fast and loses control of his vehicle rounding a curve, he may decide to simply claim that there was another vehicle coming toward him that crossed the center line and forced him off the road. Naturally, insurance carriers have tried over the years to protect themselves from such fraudulent claims with clauses in their policies. Such policy provisions are commonly referred to as "corroboration clauses," and they are very common, and have been routinely upheld, in other states. The Alabama Supreme Court, however, has displayed a tendency to strike down such protective clauses.

The genesis of this struggle can be found in the Alabama Supreme Court decision of State Farm Cas. Co. v. Lambert, 291 Ala. 645, 285 So. 2d 917 (1973). In that case, the Court struck down a provision in the State Farm policy that required evidence of physical contact between the vehicles, holding that this restriction violated the intent of the Act.

More recently, in Hannon v. Scottsdale Ins. Co., 736 So. 2d 616 (Ala. Civ. App. 1999), the Alabama Court of Civil Appeals confused matters, upholding a provision in a policy which required that:

. . . the facts of the accident can be corroborated by competent evidence other than the testimony of any person making a claim under this or any other similar insurance as the result of such accident.

The Court of Civil Appeals, while specifically citing and recognizing Lambert, failed to really explain why this clause was different. Nevertheless, the Hannon decision was widely heralded in the insurance and defense community, and most insurance carriers doing business in Alabama rushed to insert corroboration clauses identical to the one upheld in Hannon to their policies.

As one probably should have expected, however, it did not take long for the Alabama Supreme Court to reverse Hannon. Indeed, on May 10, 2002, the Supreme Court expressly overruled the Civil Appeals decision in Hannon, and in Walker v. Guideone Specialty Mut. Ins., 2002 WL 960048 (Ala.), the Court struck down an identical corroboration clause, holding it to be violative of our Uninsured Motorist Act.

If your client is injured as the result of the negligence of wantonness of a tort-feasor who is "uninsured" as defined above, the next question becomes: Is the injured individual an "insured" within the purview of uninsured motorist coverage?

An individual can become an "insured" for uninsured motorist purposes by means of two different avenues. First, the named insured, and any relative of his who resides in the same household as the named insured, is provided coverage under the terms of the policy. Such an insured has traditionally been referred to as a "first class" insured. Secondly, even a person who is not related to the named insured may become an "insured" simply because of his status as an occupant of the vehicle insured under the policy. Traditionally, such insureds have been referred to as "second class" insureds.

Historically, one of the most important distinctions between first and second class insureds was whether the individual would be entitled to "stack" coverages when the insurance carrier insures more than one vehicle for the named insured. Traditionally, before the amendment of the Uninsured Motorist Statute in 1984, a first class insured was entitled to "stack" coverages; a second class insured was not entitled to stack. Holloway v. Nationwide Mut. Ins. Co., 376 So. 2d 690 (Ala. 1979). Moreover, a party who was entitled to do so could stack coverages for as many vehicles as the insured had covered. Thus, where the named insured had a policy with $20,000.00 uninsured motorist coverage, and seven cars were insured, if his son was injured in an automobile accident, there would be $140,000.00 worth of coverage available.

With the passage of the amendment of the uninsured motorist statute in the 1984, however, subsection (c) was added, which reads as follows:

The recovery by an injured person under the uninsured motorist provisions of any one contract of automobile insurance shall be limited to the primary coverage plus such additional coverage as may be provided for additional vehicles, but not to exceed two additional coverages within such contract.

Clearly, reading the above provision, the legislature intended to limit the right of an individual to "stack" coverages. Moreover, whether intended or not, by including the words "of one contract" and "within such contract," the amendment had additional, far reaching implications with regard to who can and cannot stack coverage, and how much coverage can be stacked

In Travelers Ins. Co. v. Jones, 529 So. 2d 234 (Ala. 1988), the Alabama Supreme Court held the passengers who were involved in a collision with an uninsured motorist could stack uninsured motorist coverages under the policy issued to the driver of the vehicle they occupied, even though said passengers were not named insureds, were not married to or otherwise related to the driver (named insured), and never paid any premiums on the policy covering the vehicle they occupied. Please note that this was an important departure from previous Alabama law, as the rationale always used for "stacking" was that the person paying the premium had a reasonable expectation of additional coverage when insuring more than one vehicle, since he paid for uninsured motorist coverage on these additional vehicles; conversely, it was traditionally held that someone simply occupying the vehicle, who had paid no such premiums, had no right to the same expectation. The Supreme Court held, however, that when the legislature amended the uninsured motorist statute in 1984, adding subsection (c), it made it mandatory for an insurance company to stack coverages, up to three vehicles, when the vehicles were covered under the same insurance policy or contract. Thus, in such cases (where multiple vehicles are insured under one insurance policy), the Jones case effectively abolished the distinction between first class and second class insureds for purposes of stacking.

In the opinion issued in Jones, the Court expressly withheld any ruling as to whether a mere passenger in a car that was covered by one policy could stack additional coverages included in separate policies for additional vehicles owned by the same insured. As set forth below, however the court did shortly answer this question in a separate case.

Specifically, in Allstate Ins. Co. v. Alfa Mut. Ins. Co., 565 So. 2d 179 (Ala. 1990), the Supreme Court held that a second class insured was not entitled to "stack" the coverage available on an additional vehicle owned by the named insured of the vehicle she occupied, where said second vehicle was insured under a separate policy. Thus, to reiterate, the distinction between first and second class insureds is still important, for "stacking" purposes, where multiple vehicles are insured under separate policies.

Another classic illustration of the significance of the specific language of the 1984 amendment, adding subsection (c), is the Alabama Supreme Court decision of State Farm Mut. Ins. Co. v. Fox, 541 So. 2d 1070 (Ala. 1989). There, the Supreme Court held that although subsection (c) does limit an insurer's liability to three polices (the primary coverage plus two), this provision is applicable only to a single insurance policy, and thus, it did not preclude the stacking of coverages, by a first class insured, for five separate vehicles when they were insured under their own individual policies. Thus, to repeat, when multiple vehicles are insured under separate policies (as opposed to one single policy), the limitation on stacking of three coverages found under subsection (c) does not apply.

Applying the rules and law set forth above, one can see that there may be actually three sources of potential insurance coverage for a given automobile accident. Obviously, one must look first to the liability insurance coverage, if any, for the tort-feasor. Secondly, as discussed above, there can be coverage available to the injured party through the insurance carrier providing uninsured motorist coverage for the vehicle occupied by him. Thirdly, if the injured party is riding in someone else's car, and he has his own uninsured motorist coverage under his (or his family's) policy or policies, this can provide a third layer of coverage. Moreover, the coverage "stacks" in the order outlined above. Please see Almeida v. State Farm Mut. Ins. Co., 53 Ala. App. 175, 298 So. 2d 260 (1974); Allstate Ins. Co. v. Alfa Mut. Ins. Co., 565 So. 2d 179 (Ala. 1990); Illinois National Insurance Co. v. Kelley, 764 So. 2d 1283 (Ala. Civ. App. 2000).

This raises, however, another interesting question. In the scenario set forth above, must the insured (plaintiff) exhaust (receive) all of the policy limits of the previous layer of coverage before he is entitled to make a claim under the next one? The answer is "no," with some qualification. Specifically, the Alabama appellate courts have consistently held that the injured party may take less than the policy limits of the underlying level of coverage, whether it be the liability policy or an underlying, primary uninsured motorist policy, releasing that party or insurance carrier, and still proceed against the carrier providing the next level of coverage. When the plaintiff/insured does so, however, he is required to prove, in his case against the remaining carrier, that his injuries or damages have a value which exceed the policy limits of the underlying coverage, and not merely the amount of the settlement. Isler v. Federated Guaranty Mut. Ins. Co., 594 So. 2d 37 (Ala. 1992); State Farm Mut. Automobile Ins. Co. v. Scott, 707 So. 2d 238 (Ala. Civ. App. 1997); Illinois National Ins. Co. v. Kelley, 764 So. 2d 1283 (Ala. Civ. App. 2000); Omni Ins. Co. v. Foreman, 802 So. 2d 195 (Ala. 2001).

As stated above, a critical element of an uninsured motorist case is the requirement that the claimant be able to prove that he is "legally entitled to recover" damages against the uninsured tort-feasor. On the surface, this would seem simple enough. One would think this means that the insured must demonstrate that if he sued the individual tort-feasor, he could and would win.

Indeed, traditionally, this was exactly the interpretation of "legally entitled to recover" applied by Alabama's courts. For example, in State Farm Mut. Auto. Ins. Co. v. Griffin, 51 Ala. App. 426 at 431, 286 So. 2d 302 (1973) the court held:

One must, then, make a determination as to what the words, "legally entitled to recover damages," mean. they mean that the insured must be able to establish fault on the part of the uninsured motorist, which gives rise to damages, and must be able to prove the extent of those damages. In a direct action by the insured against the insurer, the insured has the burden of proving in this regard that the other motorist was uninsured, legally liable for damage to the insured, and the amount of this liability. Note that the insurer would have available, in addition to policy defenses, the substantive defenses that would have been available to the uninsured motorist. (Emphasis added.)

The Alabama Supreme Court has repeatedly cited and quoted this portion of the holding in Griffin favorably. Thus, no one doubts, for example, that such traditional common law defenses as contributory negligence and assumption of risk are available to the uninsured motorist carrier in such cases where they could be proved against the insured. There is a line of Alabama Supreme Court cases, however, that essentially holds that this rule in Griffin should not be taken too literally, and the Court has shown a reluctance to allow uninsured motorist carriers to assert the shields of more "technical" defenses.

The Alabama Supreme Court has repeatedly held that the mere fact that a given tort-feasor may technically enjoy "tort immunity" will not be allowed to defeat an uninsured motorist claim against the plaintiff's insurance company based upon the alleged negligence of this tort-feasor. The Court has consistently held this way, whether the immunity of the purported tort-feasor was based on federal law or state law, and such holdings have extended over the years, during times when the Court was composed of a variety of different justices. Please see, e.g., State Farm Auto Ins. Co. v. Baldwin, 470 So. 2d 1230 (Ala. 1985) where the Court held that federal tort immunity did not bar an uninsured claim; State Farm Automobile Ins. Co., v. Jeffers, 686 So. 2d 248 (Ala. 1996), where the Court held that the sovereign immunity (state law) enjoyed by a sheriff's deputy did not bar an uninsured motorist claim based upon the negligence of said deputy; and Hogan v. State Farm Automobile Ins. Co., 730 So. 2d 1157 (Ala. 1998), where the Supreme Court held that the immunity of the tort-feasor driver to liability provided by the Alabama Guest Statute did not bar an uninsured motorist claim based upon the negligence of said driver.

Unfortunately a relatively recent decision of the Alabama Court of Civil Appeals again muddies the water on this issue. In State Farm Mut. Auto. Ins. Co. v. Carlton, __ So. 2d __ 2001 WL 499076 (Ala. Civ. App.) decided on May 11, 2001, the Court of Civil Appeals, by a narrow majority, held that when a plaintiff is injured on the job, and is entitled to recover workers' compensation benefits, he cannot also sue his own insurance company seeking uninsured motorist benefits based upon the alleged negligence of a driver who is a "co-employee" of the plaintiff, due to the tort immunity given such "co-employees" under Section 25-5-11 Code of Alabama. Frankly, this decision seems clearly contrary to the Alabama Supreme Court cases cited above, and Justice Mark Montiel says exactly this in his dissenting opinion in Carlton.

The Hogan case, cited above, was heralded by many as a major departure from previous Alabama law. In truth, it was not when read in the context of Baldwin and Jeffers. Indeed, many lawyers erroneously construe Hogan as carte blanc authority for a passenger always being able to sue for uninsured motorist coverage based upon the negligence of the driver of the vehicle he occupied at the time of the accident. Not so. There is an important aspect of the Hogan case that was initially overlooked by many practitioners in this state. Specifically, the plaintiff in Hogan was making a claim under her own separate insurance policy, and not under the policy covering the vehicle she occupied at the time of the accident.

This is no small point, since there is a long line of Alabama cases that do not allow a plaintiff to assert a claim under the policy covering the vehicle occupied by the plaintiff, for uninsured motorist benefits, based upon a theory that the driver of that same vehicle was negligent and responsible for the accident. Please see, e.g., Ex parte O'Hare, 432 So. 2d 1300 (Ala. 1983); Sullivan v. State Farm Mut. Auto. Ins. Co., 513 So. 2d 992 (Ala. 1987); Hall v. State Farm Mut. Auto. Ins. Co., 514 So. 2d 853 (Ala. 1987); Allstate Inc. So. v. Hardnett, 763 So. 2d 963 (Ala. 2000). This is because the insurance policies in each of these cases excluded, from the definition of "uninsured motor vehicle," the actual vehicle described in the declarations of that policy.

Indeed, a recent decision by the Alabama Supreme Court confirms that Hogan is limited to cases where the plaintiff is making a claim under his own separate insurance policy, and not the policy covering the vehicle driven by his host. Please see Allstate Inc. So. v. Hardnett, 763 So. 2d 963 (Ala. 2000).

Before settling with the tort-feasor, however, there are certain procedures, which must be followed by the claimant under Alabama law. This is due to the fact that, in order to protect their subrogation rights against the tort-feasor, practically all uninsured motorist carriers have "consent to settlement" clauses in their policies. Subsequent to the amendment of the Act in 1984, there was a series of cases which, piece by piece, established these procedures. Finally, however, the Alabama Supreme Court summarized them in one comprehensive decision, Lambert v. State Farm Mut. Automobile Ins. Co., 576 So. 2d 160 at 167 (Ala. 1991). There, the Court set forth said procedures as follows:

In this opinion, we set out the procedure that should be followed in every case in which the rights of the insured and the underinsured motorist insurance carrier may conflict.

Necessarily, any procedure must take into consideration the facts and circumstances of each individual case, but the following general rules should apply:

(1) The insured, or the insured's counsel, should give notice to the underinsured motorist insurance carrier of the claim under the policy for underinsurance benefits as soon as it appears that the insured's damages may exceed the tort-feasor's limits of liability coverage.
  (2) If the tort-feasor's liability insurance carrier and the insured enter into negotiations that ultimately lead to a proposed compromise or settlement of the insured's claim against the tort-feasor, and if the settlement would release the tort-feasor from all liability, then the insured, before agreeing to the settlement, should immediately notify the underinsured motorist insurance carrier of the proposed settlement and the terms of any proposed release.
(3) At the time the insured informs the underinsured motorist insurance carrier of the tort-feasor's intent to settle, the insured should also inform the carrier as to whether the insured will seek underinsured motorist benefits in addition to the benefits payable under the settlement proposal, so that the carrier can determine whether it will refuse to consent to the settlement, will waive its right of subrogation against the tort-feasor, or will deny any obligation to pay underinsured motorist benefits. If the insured gives the underinsured motorist insurance carrier notice of the claim for underinsured motorist benefits, as may be provided for the policy, the carrier should immediately begin investigating the claim, should conclude such investigation within a reasonable time, and should notify its insured of the action it proposes with regard to the claim for underinsured motorist benefits.
(4) The insured should not settle with the tort-feasor without first allowing the underinsured motorist insurance carrier a reasonable time within which to investigate the insured's claim and to notify its insured of its proposed action.
(5) If the uninsured motorist insurance carrier refuses to consent to a settlement by its insured with the tort-feasor, or if the carrier denies the claim of its insured without a good faith investigation into its merits, or if the carrier does not conduct its investigation in a reasonable time, the carrier would, by any of those actions, waive any right to subrogation against the tort-feasor or the tort-feasor's insurer.
(6) If the underinsured motorist insurance carrier wants to protect its subrogation rights, it must, within a reasonable time, and, in any event before the tort-feasor is released by the carrier's insured, advance to its insured an amount equal to the tort-feasor's settlement offer.

A final issue we shall address today is the question of the potential exposure of the uninsured motorist carrier for the tort of "bad faith."

For years, many in this state thought that there was no such tort in the uninsured motorist context. This notion was likely fostered by the Alabama Supreme Court decision of Quick v. State Farm Mut. Ins. Co., 429 So. 2d 1033 at 1035 (Ala. 1983), in which the Court stated:

We agree with the Florida court that there is an inherent difference in uninsured motorist coverage and first party insurance. The provisions of uninsured motorist coverage reorder the normal postures between an insured and an insurer. Thus, until the liability of the uninsured motorist has been determined, the insurer and insured occupy an adversary position toward each other.

. . . .

Thus, there can be no breach of an uninsured motorist contract, and therefore no bad faith, until the insured proves that he is legally entitled to recover.

This school of thought was unquestionably reinforced by the subsequent decision of Aetna Casualty & Surety Co. v. Beggs, 525 So. 2d 1350 (Ala. 1988), where the Supreme Court held that "it is doubtful that an insured could ever prove the amount of the insurer's liability under uninsured motorist coverage in a wrongful death case with the specificity necessary to recover against an insurer for bad faith in failing to negotiate or pay a wrongful death claim under uninsured motorist coverage."

Then came Sanford v. Liberty Mut. Ins. Co., 536 So. 2d 941 (Ala. 1988) wherein the Supreme Court put this issue to rest, once and for all, holding that Alabama does recognize bad faith in the uninsured motorist context. Indeed, in so holding, the Court stated:

We believe such a strong public policy demands good faith dealing on the part of insurers. As one authority correctly points out,

"the various state insurance laws that establish the requirements for uninsured motorist insurance are clearly intended to benefit all insureds, and the attainment of this goal certainly encompasses requiring the fair and equitable settlement of uninsured motorist insurance claims. Unreasonable conduct by an insurer frustrates the public policy embodied in state's insurance Legislation, as well as breaching the implied-in-law duty. Thus, the standard by which the conduct of insurers is judged arguable should be higher in regard to uninsured motorist claims than it is for other first party insurance coverages. In other words, given the fact that uninsured motorist insurance is the subject of statutory requirements in forty-nine states, a persuasive argument can be made for the proposition that the duty of an insurer to act in good faith and fairly should be of the highest order in regard to claims arising under this coverage. The public interest in this coverage means that insurers should be obligated to exercise the greatest care and highest level of good faith and fair dealing." (Emphasis added.)

Thus, not only does the cause of action exist, the Court has actually held that an uninsured motorist carrier may be subject to an even higher standard than insurance companies handling other types of claims.